Magazine article American Banker

Bank Holding Companies Are Reporting Annual Results in a Variety of New Ways: 'Segmentalized' Data, Sprightly Prose, and Chic Graphics Add Interest

Magazine article American Banker

Bank Holding Companies Are Reporting Annual Results in a Variety of New Ways: 'Segmentalized' Data, Sprightly Prose, and Chic Graphics Add Interest

Article excerpt

NEW YORK -- Wall Street observers, reading the first wave of this year's annual reports, see changes in the ways bank holding companies show results to their shareholders.

Financial observers say the most important change in the first reports is a switch by some firms to "segmentalized" presentations.

This continues a trend started by Citicorp two years ago in which firms disclose the net incomes of various operations. Among those operations are retail, corporate, and investment banking.

Citicorp divides its financial reporting into three major areas: its "institutional bank," which services major corporate customers; its "individual bank," which handles retail operations; and its "investment bank," which handles such operations as fund raising, foreign exchange, and risk management -- in addition to merger and acquisition, and securities products, among others.

Manufacturers Hanover follows that lead this year in its "magazine" with a separate story on each of its leading areas. Included in the articles, and scattered throughout the rest of the report, is information not previously released to analysts.

Manufacturers gives a breakdown on what portion of its profits came from some areas of its operations. The company says it makes about one-fourth of its total net income from its consumer operations, one-fifth from lending to major corporate customers, and another one-fifth from investment banking activities.

Citicorp's annual report is heavy on numbers, pointing out that its institutional bank earned $737 million in net income last year, while its individual bank netted $212 million and its investment bank $160 million.

However, these figures add up to over $1.1 billion, while Citicorp reported net income of only $890 million last year. This shows some of the problems with segmentalized reporting, especially in the areas of complete information and consistency between companies.

Citicorp, in addition to the results from the its three areas, adds another section consisting of unspecified items.

This "other items" area posts a $219 million net loss for the company.

Analysts and other observers believe these other costs include expenses which cut across the duties of each banking group under the Citicorp umbrella. There is no breakdown of what each area contributed to the category.

While analysts are happy to get the increased information, they say the companies are still not consistently telling as full a story as the analysts would like.

For one thing, "you have no idea of cost allocation," says Robert Albertson, an analyst with Smith Barney, Harris Upham Inc.

With too much of any group's expenditures dumped into the "other items" category, analysts have a hard time judging the efficiency of each operation.

Another factor adding to the analysts' difficulties is the fact that some companies define different core businesses in different ways. For example, most firms include bond trading and omit foreign exchange trading when defining investment banking, leaving the latter for the "institutional bank" category.

However, there are differing opinions among banks on exactly which categories include such deals as leveraged buyouts and leases. …

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